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> Australia’s central bank governor Philip Lowe warned on Wednesday the fascination with the assets felt like a “speculative mania.” Just curious, what is it a

by smaili 9y ago

> Australia’s central bank governor Philip Lowe warned on Wednesday the fascination with the assets felt like a “speculative mania.” Just curious, what is it about speculation that has govs so worried? It’s quite clear at this point Bitcoin has grown far too large and most are now speculating on its value as a store so what benefit is there to step in, attempt to regulate it, and risk its undoing? To me, I’m reminded of Sean Parker’s Social Network quote about putting ads on TheFacebook, It’s like you’re throwing the greatest party on campus and someone’s saying it’s gotta be over at 11

JetSpiegel 9y ago
If non-professional investors start putting their life savings into Bitcoin and it crashes, the government can't just say "though break, you will starve on retirement"
- dmichulke 9y ago
  Why can't they? Surely they can indebt every person with accumulating govt deficits (currently 62k in the US) so what's different? https://ycharts.com/indicators/us_per_capita_public_debt https://ycharts.com/indicators/us_per_capita_public_debt
  - toomuchtodo 9y ago
    Because those people vote.
  - TeMPOraL 9y ago
    Because a) this debt at least pretends to pay for the comforts of their lives like infrastructure, security - and in some countries - education and healthcare; and b) national debt does not work the same way a private individual's debt works.
    - dmichulke 9y ago
      a)So taking on debt pretending to do something good is fine? What if I say they do something bad with that debt too, is it still OK? b) Interest rates are being paid for decades via taxes, money that could have been put to use much better. I'd say it's similar enough and don't think "it works differently" is an argument here
      - exelius 9y ago
        It works differently because the US can just issue more currency to pay off debt. Honestly sovereign debt is a currency manipulation / money supply tool more than anything.
        DennisP 9y ago
        Yes but sooner or later we all pay when they do that.
  - pc86 9y ago
    What does per capita public debt have to do with someone losing their life savings?
    - dmichulke 9y ago
      It's inconsistent that the govt "saves" you from losing your life savings yet indebts you with a nontrivial amount plus lifelong interest rate payments. Put as question: how much would you like legally binding financial advice by someone up to their ears in debt?
      - pc86 9y ago
        I don't owe $60k because the USG has $60k in per capita debt. Nobody's coming to me for that. The mental gymnastics you need to go through just to equate the two is exhausting. "Legally binding" and "advice" are mutually exclusive concepts. And it's 100% possible you can give great financial advice and be in debt. "Max out your 401k and a Roth IRA" is great advice in 99% of circumstances. Just because someone is paying off high interest credit cards instead doesn't make the advice invalid or their choice of priorities incorrect.
        eberkund 9y ago
        I can see where @dmichulke is coming from, nobody is going to come to your door looking for that money in the fashion you describe but you are paying for it one way or another. Who knows, maybe if the debt levels weren't so high the US would be able to afford a healthcare system like the rest of the developed world.
        paulmd 9y ago
        > Who knows Anyone who has applied a modicum of thought to the issue. The US already has more per-capita public funding going to healthcare than any other nation, we simply don't get a good return on it because that is perceived as "socialism". And pursuing a highly conservative fiscal policy (far off the right side of the Overton window) is not going to change that, nor advance the cause of said "socialist" policies. It's flabbergasting that you would suggest that as any kind of a reasonable cause-and-effect.
  - freehunter 9y ago
    I'm not on the hook for "my share" of the national debt. The government isn't going to knock on my door with a $62k tax bill next month. That's the government's debt, not mine. If I spend all my money but still owe creditors more, that's what I'm on the hook for. That's real debt.
    - abcdefghijklm 9y ago
      No, they won't knock on your door with a tax bill. Because it's easier to tax you through inflation to finance that debt: https://en.wikipedia.org/wiki/Seigniorage#Seigniorage_as_a_tax https://en.wikipedia.org/wiki/Seigniorage#Seigniorage_as_a_t... "Economists regard seigniorage as a form of inflation tax, redistributing real resources to the currency issuer. Issuing new currency, rather than collecting taxes paid out of the existing money stock, is then considered in effect a tax that falls on those who hold the existing currency."
      - danblick 9y ago
        Eh. But inflation only affects nominal assets like bonds and bank account balances. Real assets like houses or stocks (to a degree) would be expected to rise along with inflation. That makes inflation distortionary, not some ideal tax on wealth. Governments can't just run away with inflation as an alternative to tax.
- indubitable 9y ago
  I think this almost certainly is not the reason. You can take something as simple as lotteries to show this. Lotteries specifically target and exploit lower income individuals who we can say are probably not 'professional investors.' And they're huge money. In 2016 $80.55 billion was spent on lottery tickets in state lotteries in the US. [1] That's hundreds of dollars per person if each and every adult in the US bought exactly an equal share of all lottery tickets. In reality only x% of people play and the distribution is going to he heavily distorted. Lotteries are a major drain on society, but government's love the 'free' money. So we have them. [1] - https://www.statista.com/statistics/215265/sales-of-us-state-and-provincial-lotteries/ https://www.statista.com/statistics/215265/sales-of-us-state...
  - chii 9y ago
    but people don't usually put their entire life savings into lottery. but may be they could with Bitcoins...
    - slowmotiony 9y ago
      I don't understand your point at all, what is stopping me from using my life savings on lottery?
      - BoorishBears 9y ago
        You don't understand the point, or you don't agree? Because to me it should be easy to understand that Lottery isn't marketed/treated as an investment (crypto has started to be legitimately treated as such), and historical returns don't suggest it would work. Crypto is just attractive enough it could pull the wrong type of attention from everyday people acting as investors. I don't agree with direct regulation, but I can definitely see why the government would be worried.
    - indubitable 9y ago
      The data would beg to differ. You have to keep in mind the demographic makeup of the US. More than half of Americans have less than $1,000 in savings - total. [1] Only 15% of Americans have more than $10k saved. Now take that $80 billion figure from the lottery. There are currently about 245 million adults in the US. About 49% of Americans play state lotteries. [2] Now let's do the math. That's $80.55 billion / (245 million * 0.49) = $671 spent on lotteries on average!! It is very safe to say that there are alot of people spending all, or near all, of what could be their life savings on lottery tickets. Lottery tickets are almost always negative expected value which means you're basically lighting money on fire, and governments worldwide love them. More generally the US government acts as an oligarchy. Government self interest, followed by special interests are what generally drive government action. Public utility (and opinion) play a very minor role. And yes, I even have a source for this as well as I understand this is not what many people want to believe. [3] [1] - https://www.fool.com/investing/2016/09/25/how-much-does-the-average-american-have-in-their-s.aspx https://www.fool.com/investing/2016/09/25/how-much-does-the-... [2] - http://news.gallup.com/poll/193874/half-americans-play-state-lotteries.aspx http://news.gallup.com/poll/193874/half-americans-play-state... [3] - http://www.princeton.edu/~mgilens/Gilens%20homepage%20materials/Gilens%20and%20Page/Gilens%20and%20Page%202014-Testing%20Theories%203-7-14.pdf http://www.princeton.edu/~mgilens/Gilens%20homepage%20materi...
indubitable 9y ago
Let's be enormously speculative and consider what might happen if cryptocurrencies do not collapse. The implications of this are interesting. They would end up being a worldwide asset that hedges against pretty much everything except worldwide economic collapse. That's sounding like the makings of the next reserve currency. What would be the implications of this for nations that currently benefit from the current world reserve currency? What would be the implications of economic vessels like national bonds and other treasuries that nations rely on to borrow money? It would also all but entirely nullify a major chunk of government power and control. If a nation is unhappy with the economic direction of their country they can inflate or deflate the monetary supply, manipulate national holding rates, and more. Or take 'offensive economics.' If a nation wants to attack an individual, group, or even another country assets can often be frozen. And we haven't even gotten into the implications this would have on the international banking system. It's funny in a way. You just don't know if you're on the doorstep of a complete shift of era in economics, or if you're just watching another boom bust cycle. One's certainly much more likely than the other, but if I had a major vested interest in one outcome over the other - I'd certainly be looking to take proactive action to try to ensure it.
- Agebor 9y ago
  It's not that speculative on the long term IMO. In the 80s and 90s, we found a way of connecting many computers together and here we are. Now we found a way to create programmable: trust, value, scarcity and incentives. If that's not going to change the society over the next 20-30 years, I don't know what will. Only land ownership could remain in the space of interest of governments then (being immovable).
  - pedrocr 9y ago
    >Now we found a way to create programmable: trust, value, scarcity and incentives. I've seen variations of this argument repeated often. It sounds sexy but then when you probe it's hard to nail down something big enough we can't currently do that becomes possible. Financial markets are already very sophisticated and if anything retail investors are still not using the great products out there as much as they should (index funds are huge and yet most people still prepare very poorly for retirement). Maybe it's just a case of we still not knowing the actual killer app of crypto currencies and contracts and this is just like connected networks in the 70s. Or maybe this is like the segway and smart people are convinced it will revolutionize things but in the end it's just handwaving.
thkim 9y ago
When a bubble bursts, it's not just about some people, but it brings down the whole economy. I can't believe people have already forgotten what CDO has done to this economy. Bitcoin & cryptos are financial weapons of mass destruction. Any responsible government ought to outright ban them all already.
- creaghpatr 9y ago
  Like student loans, bubble speculators will want government compensation, or need it via welfare/Medicaid/tax writeoff etc most likely the tax write offs
- fragsworth 9y ago
  > Bitcoin & cryptos are financial weapons of mass destruction. You need to explain this. Many of us just think it's a good replacement for gold and other precious metals. Is gold a "financial weapon of mass destruction"?
  - thkim 9y ago
    that's a valid question. three reasons why bitcoin & crypto is NOT like gold and very dangerous. 1) limited supply: drives up price enormously. almost endless. minimal supply, infinitely increasing demand. depending on how far this will go it can potentially suck up all liquidity in the world. 2) no authority, no price stabilization, meaning extreme volatility that adds fuel to vol & price rise, 3) ease of access: anyone can buy with a dollar, also fueling to vol & price rise. how bitcoin will end looks very ugly to me in any case. either collapsing a global economy or bringing an unprecedented global inflation
    - jstanley 9y ago
      > 1) limited supply [...] 2) no authority [...] 3) ease of access But there must be something bad about it as well, right?
      - deleted 9y ago
        [deleted]
pjc50 9y ago
Worst case scenario: https://en.wikipedia.org/wiki/Albanian_Civil_War https://en.wikipedia.org/wiki/Albanian_Civil_War "a period of civil disorder in Albania in 1997, sparked by Ponzi scheme failures. The government was toppled and more than 2,000 people were killed" .. "By January 1997, Albanian citizens, who had lost a total of $1.2 billion—the population being only three million—took their protest to the streets" There are now reports of people taking out mortgages or HELOCs to buy bitcoin. That is a disaster waiting to happen - it was bad enough when the mortgages were underwater because they'd been invested in houses which lost value, but bitcoins can potentially fall a lot further. Or be easily lost entirely.
- deweller 9y ago
  I call FUD on the reports of people going into deep debt to buy bitcoin. Sure there will always be some people that do this. And it makes for a good story, so the media reports it. But I don't think this is something that is happening in significant numbers.
  - dhruvrrp 9y ago
    I don't know about deep debt, but I've had multiple people whose are basically technically illiterate ask me about bitcoin and how to buy them. One of them even asked me which bank they could drive to open an account and buy bitcoin! There is a new wave of people who've read the 10,000% return articles on fb or whatever who now wanna invest every penny that they have into bitcoin

by smaili 9y ago

JetSpiegel 9y ago

If non-professional investors start putting their life savings into Bitcoin and it crashes, the government can't just say "though break, you will starve on retirement"

dmichulke 9y ago
Why can't they? Surely they can indebt every person with accumulating govt deficits (currently 62k in the US) so what's different? https://ycharts.com/indicators/us_per_capita_public_debt https://ycharts.com/indicators/us_per_capita_public_debt
- toomuchtodo 9y ago
  Because those people vote.
- TeMPOraL 9y ago
  Because a) this debt at least pretends to pay for the comforts of their lives like infrastructure, security - and in some countries - education and healthcare; and b) national debt does not work the same way a private individual's debt works.
  - dmichulke 9y ago
    a)So taking on debt pretending to do something good is fine? What if I say they do something bad with that debt too, is it still OK? b) Interest rates are being paid for decades via taxes, money that could have been put to use much better. I'd say it's similar enough and don't think "it works differently" is an argument here
    - exelius 9y ago
      It works differently because the US can just issue more currency to pay off debt. Honestly sovereign debt is a currency manipulation / money supply tool more than anything.
      - DennisP 9y ago
        Yes but sooner or later we all pay when they do that.
- pc86 9y ago
  What does per capita public debt have to do with someone losing their life savings?
  - dmichulke 9y ago
    It's inconsistent that the govt "saves" you from losing your life savings yet indebts you with a nontrivial amount plus lifelong interest rate payments. Put as question: how much would you like legally binding financial advice by someone up to their ears in debt?
    - pc86 9y ago
      I don't owe $60k because the USG has $60k in per capita debt. Nobody's coming to me for that. The mental gymnastics you need to go through just to equate the two is exhausting. "Legally binding" and "advice" are mutually exclusive concepts. And it's 100% possible you can give great financial advice and be in debt. "Max out your 401k and a Roth IRA" is great advice in 99% of circumstances. Just because someone is paying off high interest credit cards instead doesn't make the advice invalid or their choice of priorities incorrect.
      - eberkund 9y ago
        I can see where @dmichulke is coming from, nobody is going to come to your door looking for that money in the fashion you describe but you are paying for it one way or another. Who knows, maybe if the debt levels weren't so high the US would be able to afford a healthcare system like the rest of the developed world.
        paulmd 9y ago
        > Who knows Anyone who has applied a modicum of thought to the issue. The US already has more per-capita public funding going to healthcare than any other nation, we simply don't get a good return on it because that is perceived as "socialism". And pursuing a highly conservative fiscal policy (far off the right side of the Overton window) is not going to change that, nor advance the cause of said "socialist" policies. It's flabbergasting that you would suggest that as any kind of a reasonable cause-and-effect.
- freehunter 9y ago
  I'm not on the hook for "my share" of the national debt. The government isn't going to knock on my door with a $62k tax bill next month. That's the government's debt, not mine. If I spend all my money but still owe creditors more, that's what I'm on the hook for. That's real debt.
  - abcdefghijklm 9y ago
    No, they won't knock on your door with a tax bill. Because it's easier to tax you through inflation to finance that debt: https://en.wikipedia.org/wiki/Seigniorage#Seigniorage_as_a_tax https://en.wikipedia.org/wiki/Seigniorage#Seigniorage_as_a_t... "Economists regard seigniorage as a form of inflation tax, redistributing real resources to the currency issuer. Issuing new currency, rather than collecting taxes paid out of the existing money stock, is then considered in effect a tax that falls on those who hold the existing currency."
    - danblick 9y ago
      Eh. But inflation only affects nominal assets like bonds and bank account balances. Real assets like houses or stocks (to a degree) would be expected to rise along with inflation. That makes inflation distortionary, not some ideal tax on wealth. Governments can't just run away with inflation as an alternative to tax.
indubitable 9y ago
I think this almost certainly is not the reason. You can take something as simple as lotteries to show this. Lotteries specifically target and exploit lower income individuals who we can say are probably not 'professional investors.' And they're huge money. In 2016 $80.55 billion was spent on lottery tickets in state lotteries in the US. [1] That's hundreds of dollars per person if each and every adult in the US bought exactly an equal share of all lottery tickets. In reality only x% of people play and the distribution is going to he heavily distorted. Lotteries are a major drain on society, but government's love the 'free' money. So we have them. [1] - https://www.statista.com/statistics/215265/sales-of-us-state-and-provincial-lotteries/ https://www.statista.com/statistics/215265/sales-of-us-state...
- chii 9y ago
  but people don't usually put their entire life savings into lottery. but may be they could with Bitcoins...
  - slowmotiony 9y ago
    I don't understand your point at all, what is stopping me from using my life savings on lottery?
    - BoorishBears 9y ago
      You don't understand the point, or you don't agree? Because to me it should be easy to understand that Lottery isn't marketed/treated as an investment (crypto has started to be legitimately treated as such), and historical returns don't suggest it would work. Crypto is just attractive enough it could pull the wrong type of attention from everyday people acting as investors. I don't agree with direct regulation, but I can definitely see why the government would be worried.
  - indubitable 9y ago
    The data would beg to differ. You have to keep in mind the demographic makeup of the US. More than half of Americans have less than $1,000 in savings - total. [1] Only 15% of Americans have more than $10k saved. Now take that $80 billion figure from the lottery. There are currently about 245 million adults in the US. About 49% of Americans play state lotteries. [2] Now let's do the math. That's $80.55 billion / (245 million * 0.49) = $671 spent on lotteries on average!! It is very safe to say that there are alot of people spending all, or near all, of what could be their life savings on lottery tickets. Lottery tickets are almost always negative expected value which means you're basically lighting money on fire, and governments worldwide love them. More generally the US government acts as an oligarchy. Government self interest, followed by special interests are what generally drive government action. Public utility (and opinion) play a very minor role. And yes, I even have a source for this as well as I understand this is not what many people want to believe. [3] [1] - https://www.fool.com/investing/2016/09/25/how-much-does-the-average-american-have-in-their-s.aspx https://www.fool.com/investing/2016/09/25/how-much-does-the-... [2] - http://news.gallup.com/poll/193874/half-americans-play-state-lotteries.aspx http://news.gallup.com/poll/193874/half-americans-play-state... [3] - http://www.princeton.edu/~mgilens/Gilens%20homepage%20materials/Gilens%20and%20Page/Gilens%20and%20Page%202014-Testing%20Theories%203-7-14.pdf http://www.princeton.edu/~mgilens/Gilens%20homepage%20materi...

indubitable 9y ago

Let's be enormously speculative and consider what might happen if cryptocurrencies do not collapse. The implications of this are interesting. They would end up being a worldwide asset that hedges against pretty much everything except worldwide economic collapse. That's sounding like the makings of the next reserve currency. What would be the implications of this for nations that currently benefit from the current world reserve currency? What would be the implications of economic vessels like national bonds and other treasuries that nations rely on to borrow money? It would also all but entirely nullify a major chunk of government power and control. If a nation is unhappy with the economic direction of their country they can inflate or deflate the monetary supply, manipulate national holding rates, and more. Or take 'offensive economics.' If a nation wants to attack an individual, group, or even another country assets can often be frozen. And we haven't even gotten into the implications this would have on the international banking system. It's funny in a way. You just don't know if you're on the doorstep of a complete shift of era in economics, or if you're just watching another boom bust cycle. One's certainly much more likely than the other, but if I had a major vested interest in one outcome over the other - I'd certainly be looking to take proactive action to try to ensure it.

Agebor 9y ago
It's not that speculative on the long term IMO. In the 80s and 90s, we found a way of connecting many computers together and here we are. Now we found a way to create programmable: trust, value, scarcity and incentives. If that's not going to change the society over the next 20-30 years, I don't know what will. Only land ownership could remain in the space of interest of governments then (being immovable).
- pedrocr 9y ago
  >Now we found a way to create programmable: trust, value, scarcity and incentives. I've seen variations of this argument repeated often. It sounds sexy but then when you probe it's hard to nail down something big enough we can't currently do that becomes possible. Financial markets are already very sophisticated and if anything retail investors are still not using the great products out there as much as they should (index funds are huge and yet most people still prepare very poorly for retirement). Maybe it's just a case of we still not knowing the actual killer app of crypto currencies and contracts and this is just like connected networks in the 70s. Or maybe this is like the segway and smart people are convinced it will revolutionize things but in the end it's just handwaving.

thkim 9y ago

When a bubble bursts, it's not just about some people, but it brings down the whole economy. I can't believe people have already forgotten what CDO has done to this economy. Bitcoin & cryptos are financial weapons of mass destruction. Any responsible government ought to outright ban them all already.

creaghpatr 9y ago
Like student loans, bubble speculators will want government compensation, or need it via welfare/Medicaid/tax writeoff etc most likely the tax write offs
fragsworth 9y ago
> Bitcoin & cryptos are financial weapons of mass destruction. You need to explain this. Many of us just think it's a good replacement for gold and other precious metals. Is gold a "financial weapon of mass destruction"?
- thkim 9y ago
  that's a valid question. three reasons why bitcoin & crypto is NOT like gold and very dangerous. 1) limited supply: drives up price enormously. almost endless. minimal supply, infinitely increasing demand. depending on how far this will go it can potentially suck up all liquidity in the world. 2) no authority, no price stabilization, meaning extreme volatility that adds fuel to vol & price rise, 3) ease of access: anyone can buy with a dollar, also fueling to vol & price rise. how bitcoin will end looks very ugly to me in any case. either collapsing a global economy or bringing an unprecedented global inflation
  - jstanley 9y ago
    > 1) limited supply [...] 2) no authority [...] 3) ease of access But there must be something bad about it as well, right?
    - deleted 9y ago
      [deleted]

pjc50 9y ago

Worst case scenario: https://en.wikipedia.org/wiki/Albanian_Civil_War https://en.wikipedia.org/wiki/Albanian_Civil_War "a period of civil disorder in Albania in 1997, sparked by Ponzi scheme failures. The government was toppled and more than 2,000 people were killed" .. "By January 1997, Albanian citizens, who had lost a total of $1.2 billion—the population being only three million—took their protest to the streets" There are now reports of people taking out mortgages or HELOCs to buy bitcoin. That is a disaster waiting to happen - it was bad enough when the mortgages were underwater because they'd been invested in houses which lost value, but bitcoins can potentially fall a lot further. Or be easily lost entirely.

deweller 9y ago
I call FUD on the reports of people going into deep debt to buy bitcoin. Sure there will always be some people that do this. And it makes for a good story, so the media reports it. But I don't think this is something that is happening in significant numbers.
- dhruvrrp 9y ago
  I don't know about deep debt, but I've had multiple people whose are basically technically illiterate ask me about bitcoin and how to buy them. One of them even asked me which bank they could drive to open an account and buy bitcoin! There is a new wave of people who've read the 10,000% return articles on fb or whatever who now wanna invest every penny that they have into bitcoin